Shell NZ to Join Great South Basin JV, Seismic Program to Begin in 4Q11

- Shell NZ to Join Great South Basin JV, Seismic Program to Begin in 4Q11

Tuesday, August 16, 2011
OMV

OMV New Zealand and Shell New Zealand announced major milestones for the Great South Basin joint venture, with the addition of Shell into the venture and confirmation that a comprehensive 3D seismic program will begin later this year on Permits 50119 and 50120. Permit 50121 will be returned to the Crown.

Subject to ministerial approval, under the new joint venture agreement Shell, a world leader in deep water exploration and production with a 100 year history in New Zealand, will take a 50% share while the existing joint venture partners OMV and PTTEP retain 18% each and Mitsui Australia retains 14%.

OMV New Zealand will remain operator of the Great South Basin permits until the end of the seismic acquisition program which is expected to be completed in early 2012. The 3D program itself will be undertaken by the state of-the-art vessel Polarcus Alima and is expected to cover about 3,000 km2.

Shell will become the joint venture's operator once the seismic acquisition program is completed.

"We are very pleased to announce these developments which we believe clearly demonstrate the joint venture's commitment to the Great South Basin. It is important to be geared up for the next steps in the exploration of a frontier basin," said OMV New Zealand Managing Director Peter Zeilinger.

"We have allocated significant manpower to studying the Great South Basin over the past four years and invested over NZ$50 million to date. The joint venture is now committing to an additional significant investment for the next phase of the project," he said.

In late 2010 OMV and its joint venture partners began an in-depth review of their planning for the Great South Basin. As part of that assessment, the joint venture identified the need for an additional partner with considerable deep water experience and best practice exploration and operating processes.

OMV New Zealand

"We undertook a detailed evaluation of several companies who could meet these tests. Shell's proven track record as an internationally experienced deep water operator with high safety and environmental standards made them the logical partner of choice," Mr. Zeilinger said.

Shell brings valuable technical expertise to the joint venture from safely delivering more than 20 groundbreaking deepwater projects around the globe. Shell's membership in the Great South Basin joint venture builds on its continuing investment in Taranaki, where it is a joint venture partner in the Maui, Kapuni and Pohokura fields.

Chairman Shell Companies in New Zealand Rob Jager said the new Great South Basin venture reflected Shell's continuing commitment to exploration and production in New Zealand.

"Shell has been investing in New Zealand for more than 100 years and safely operating offshore for more than 30 years in the challenging conditions off the coast of Taranaki. We have been impressed by the work of the joint venture to date, and see this as an exciting opportunity to bring our local and global experience to another promising region," he said.

Exploring a new frontier area is very much a long term process, Mr. Zeilinger explained.

"There are no guarantees that drilling will take place, but we are hopeful that the seismic survey will yield positive results. Our focus right now is on carrying out a robust survey," he said.

Mr. Jager said that as the new joint venture partner and future operator Shell is looking forward to working with OMV on the next stage of the project.

"Safety comes first for Shell. We have a Goal Zero operating philosophy which demands no harm to people and protect the environment. Another top priority is to get to know the local stakeholders better so that we have a strong understanding of their views and a positive foundation for continuing engagement over the coming years," he said.

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The Great Crew Change: 'Wolf Cries' or Reality?

- The Great Crew Change: 'Wolf Cries' or Reality?

Friday, August 12, 2011
Rigzone Staff
by Barbara Saunders

For more than a decade, the Great Crew Change has generated deep concern among many – and skepticism among some – in the oil and natural gas industry.

Much like the old story about the boy who cried "wolf" so many times that nobody would listen when the wolf finally was at the door, statistics confirm that the post-World War II "baby boom" generation is at the retirement door.

What remains to be seen is how well the industry on the whole heeded the "wolf cries" to usher in a well-trained new generation of both technical professionals and rig labor, the two areas of greatest perceived need.

Are We There Yet?

Although there is some controversy about whether the Great Crew Change will be all that sweeping, the age statistics are indeed alarming. According to Pete Stark, VP of industry relations for IHS, the peak age for oil and gas technical personnel has risen from 43 in the year 2000 to 50 in 2006. The peak age is expected to be 60 in 2012.

Another way of looking at the situation is about half of the industry will be retiring within the next 10 years.

Retirements in progress mean that "the big crew change is happening now and will be mostly over in five years," according to a 2011 study by Schlumberger Business Consulting. The study projects that by 2014, the inflow of younger petro-technical professionals (PTPs) will be only about 17,000, compared with roughly 22,000 experienced PTPs who are expected to leave by then, for a net shortfall of 5,000.

Other key findings of the study included:

• Demand for graduates is recovering and outpacing the pessimistic forecasts of a year ago. Recruitment targets for technical staff in 2011 are 15 percent higher than levels planned in 2009. National oil companies (NOCs), independents and majors all plan to intensify recruitment efforts from 2011 onwards.
• Universities appear to be on track to provide the oil and gas industry with sufficient graduates in geosciences and petroleum engineering, but supply from "quality universities will remain tight."
• Recruitment targets for PTPs in mid-career are soaring, with NOCs and majors reporting the highest rates of increase. "The labor market for experienced PTPs will be tight over the next three years, resulting in the poaching of staff, salary escalation and higher attrition rates," the study said, continuing: "These staffing issues will have serious consequences on projects and production capacity. Companies contributing to the 2010 survey reported that staffing issues will delay projects and may drive decision makers to take more risk."

Mentoring Key

Meanwhile, the American Association of Petroleum Geologists (AAPG) teamed with the recruiting firm Working Smart in a survey this past May of technical oil company professionals age 55 and over. Of those who responded, the average intended retirement age was 65, with only 23 percent seeking to work beyond retirement age.

Many respondents felt that mentoring younger staff is a key factor in reducing adverse effects of the great crew change. The survey showed that 77 percent of respondents were currently mentoring younger staff.

Mario Carminatti, exploration manager for Brazil's national oil company Petrobras, told an industry conference that 42 percent of the company's geologists and geophysicists have less than five years of experience. "We are countering this by increasing the number of senior geoscientists and even retired professionals who operate as mentors to the younger generation," Carminatti said.

J. Ford Brett, managing director of PetroSkills, says that the price tag could be in the tens of billions for having less experienced technical personnel. If the looming demographics result in approximately 20 percent of the industry's personnel having fewer than five years' experience, Brett calculates that it's reasonable to expect a 20 percent reduction in performance across the board. "To put this into focus, in 2006 the industry spent about U.S. $170 billion on E&P. A 20 percent reduction in performance correlates with an economic cost of approximately U.S. $35 billion," Brett stated in an article for the Society of Petroleum Engineers' Talent & Technology
publication.

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El Paso Sees Great Value in Spinning Off E&P Unit

- El Paso Sees Great Value in Spinning Off E&P Unit

Wednesday, May 25, 2011
Houston Chronicle
by Tom Fowler

Natural gas pipeline giant El Paso Corp. will spin off its growing exploration and production business into a stand-alone public company, a move that has long been anticipated by analysts and investors.

The new company would be a midsize E&P company with significant acreage in a number of shale plays, including the Haynesville gas shales in Louisiana, the Eagle Ford and Wolfcamp oil shales in Texas and Utah's Altamont oil shales.

Following the spinoff, El Paso Corp. will be a natural gas pipeline business with more than 43,000 miles of pipe, midstream processing business and general and limited partner interests in El Paso Pipeline Partners, a public master limited partnership that owns some of the pipeline assets.

The as-yet-unnamed company will be Houston-based with about $4.7 billion in assets. The current head of El Paso Exploration and Production, Brent Smolik, will be CEO. The tax-free spinoff is expected to be completed by year's end.

"We believe that the creation of these two stand-alone public companies will result in significant and sustainable value creation," said Doug Foshee, chairman and chief executive officer of El Paso.

Also on Tuesday, El Paso raised its full-year earnings outlook from the 90-cent to $1.05-per-share range to a range of $1 to $1.10 per share, based largely on its improving E&P business. The 2011 exploration and production budget has also been increased by $300 million to $1.6 billion in order to step up activity on the oil-rich Eagle Ford shale in South Texas.

El Paso was one of several companies that tried its hand at the merchant energy business model in the 1990s -- owning and operating a wide range of assets from pipelines to power plants to energy trading businesses. With the collapse of the biggest of the energy merchants in late 2001, Enron Corp., many of the other companies fell on hard times and had to sell off assets and exit businesses.

In 2003, El Paso went from being involved in around 20 different industries to just two: pipelines and E&P, Foshee said.

"We got down to our core and thought we could be good and competent managers of those two businesses," he said.

Rebuilding came first

The E&P business was tough shape, however, he said, the company as a whole was saddled with a lot of debt and the pipeline business was about to embark on nearly $8 billion in expansion projects.

The idea of a spinoff of the E&P business has been considered for quite some time, but the unit needed to first rebuild itself and the corporation to strengthen its balance sheet, Foshee said in an interview.

The turnaround for E&P between 2007 and the end of 2010 has been strong. From about 3.7 trillion cubic feet equivalent of reserves in 2007, El Paso now has about 8 tcf equivalent, due largely to the unconventional shale plays. Reserve replacement costs have declined from $3.55 per mcf equivalent in 2007 to $1.40 at the end of 2010.

In 2007, 38 percent of the company's reserves were considered oil, but by the end of 2010 it was 48 percent. More than two-thirds of future growth prospects are in the oil area, the company said.

El Paso's exploration business has operations in Brazil and Egypt and some shallow-water Gulf of Mexico holdings, but the bulk of its efforts are focused on onshore unconventional oil and gas.

The company became active in the Haynesville in 2007 when it acquired leases through the acquisition of People's Energy. The company perfected its drilling and production techniques in the Haynesville, driving down costs significantly.

El Paso acquired 138,000 acres in the Wolfcamp play in West Texas and has seven years to assess and develop the field. In the Eagle Ford, El Paso has 170,000 net acres, with about 60 percent of them in areas considered rich with more valuable oil and natural gas liquids.

In Utah's Altamont field, El Paso has about 193,000 net acres. It plans to use enhanced oil recovery techniques, like CO2 injection and infill drilling, to boost production in the coming years.

Shares in El Paso closed up Tuesday $1.24, or almost 7 percent, at $20.22.

Analysts not unanimous

Analysts are not of one mind on an El Paso split. In a research note this week, Tudor Pickering Holt & Co. said it believed the company would be better off focusing on creating cash flow to continue to reduce debt for the next few years before doing a spinoff that would generate relatively little cash.

But Pearce Hammond, director for E&P research for Simmons & Co., said it's a sensible move that will appeal to shareholders.

"I would think they would pick up a number of investors who didn't want a piece of the pipeline business," Hammond said.

El Paso's focus on oil production growth makes sense given how much more oil is getting on the market compared to natural gas, Hammond said.

"But gas will have its day in the sun again," he said. "There seems to be a lot more demand for natural gas in the U.S. in the next decade than for oil."

Copyright (c) 2011, Houston Chronicle

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